In the year since Arvind Krishna became CEO, IBM (NYSE:IBM) stock is up 9%. This despite delivering $6.52/share in dividends, a yield of almost 5%.
IBM is due to report earnings after the market closes today. Analysts expect $1.67/share of earnings on $17.38 billion in revenue.
They’re hoping for $1.73. That would represent more profit than in 2020, on just about the same revenue.
But most analysts don’t care anymore. Only six follow IBM stock at Tipranks. Two rate it “buy, one rates it a “sell.” None of them have a price target much different from the $133 or so it’s trading at today.
At IBM’s current market cap of $118 billion. Microsoft (NASDSAQ:MSFT) could buy it 16 times over, but they would be fools to do it.
A Closer Look at IBM Stock
Krishna’s big decision was to spin out the services unit, with one-quarter of the company’s revenue and 90,000 employees, under the name Kyndryl. The move comes with the blessings of market analysts. It’s supposed to let IBM focus on hybrid cloud and AI.
The “Twitterati” are making jokes and the name is shared by a character in the game World of Warcraft, but this is basically an asset dump, declining businesses that no longer fit in a cloud universe.
It also guarantees that IBM itself will continue to shrink.
Krishna insists Red Hat OpenShift can help IBM gain cloud market share, but that’s not happening. The idea is that Red Hat can bring old enterprise software to cloud standards, letting it live in both corporate data centers and public clouds. That’s a hybrid cloud.
Krishna has made many small acquisitions trying to gain traction. There’s Nordcloud, based in Finland. There’s Expertus Technologies, a payments company. There’s Instana, which does performance monitoring. There’s Taos, a consultant. There’s 7Summits, a Salesforce.com (NYSE:CRM) specialist. There’s also Spanugo, a security company.
Bad at the Cloud, Troubled By AI
With horizontal cloud leadership fading away, Krishna is copying the vertical strategy of application vendors such as Salesforce.com and Adobe (NASDAQ:ADBE), with specialized industry clouds. It’s building one for construction, an one for the insurance industry that revolves around the machine internet.
The past dogs IBM’s AI efforts. Watson, which previous CEO Virginia Rometty promised would make big data queries simple, turned out to be a disaster. Watson Health, which once promised to revolutionize health care, is reportedly for sale.
IBM still says its AI can design antibiotics in days. Its Composer tool, the product of a two-year-old AI Hardware Center, can boost the performance of AI computers. IBM is betting heavily on a shift of AI interest to hybrid clouds.
So far, the best grade I can give IBM’s AI efforts is incomplete.
The Bottom Line on IBM Stock
Computing has left many great old companies behind. Unisys (NYSE:UIS), once Univac and Burroughs, is still around, worth $1.7 billion. So is NCR (NYSE:NCR), the office machines company from which IBM descended. It’s based in Atlanta and worth $5.7 billion.
There are analysts who believe in IBM and I would like to be one of them, but I can’t.
It’s hard to call a company with a 5% yield a “speculation,” but that’s IBM today. That dividend costs $5.8 billion/year to service. Frankly, I hope they dump it. If IBM is ever going to grow, it needs every dollar it can lay its hands on. And growth is what technology investors buy, not income.
At the time of publication, Dana Blankenhorn directly owned shares in MSFT.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.